The Next Big Rotation?
Some Charts Worth Watching
As long as you’ve stayed away from Mega Cap & Growth Tech names, it’s probably been a great few months for you.
Who would’ve thought boring old value areas like Copper and Steel could move 30-40% in a matter of weeks. It’s been terrific.
I covered those areas a few weeks back so I hope you’ve done well from these weekly letters.
What next I hear you ask? Is Santa coming this year? Where’s the next rotation?
Let’s start this weeks letter with a quick snapshot of the broader US market.
US Market Snapshot
We have the VIX at the low end of a defined range, the S&P500 is pushing against a level of overhead supply, and now, after the recent collapse in the US Dollar we’re back to the scene of the crime from 2017.
I covered the exact top in the US Dollar 2 months ago, and now that we’re back at the 2017/2020 levels, I’m starting to dig a little deeper and beginning to build a thesis for what comes next.
1 things for sure, the charts are clear. We’re at another MAJOR pivot level for the market which is eerily similar to the rallies in March and August.
Are we going to run out of steam again?
TNX - 10Yr Note Yield
The 10Yr Note has broke trend, and I’m simply looking for a move below what I consider to be a major pivot level.
If we break below, I think we probably see a rotation back into Mega Cap Technology stocks so that’s what I’m starting to prepare for.
To clarify, 2 things need to happen.
10Yr Note to break lower
SPX to break higher
If these things DON’T happen, the market is choppy at best and the risk:reward proposition probably favours the bears at these levels.
Price will need to confirm those 2 moves.
Rotations
I’m not going to cover the overcrowded Energy trade as I laid that out last week - LINK TO ENERGY ANALYSIS.
As you know, I prefer to look forward and I prefer to identify uptrends (or areas of the market that could be poised to start an uptrend) at the earliest possible point, so with that in mind, lets take a look at a couple of sectors.
Technology Stocks
Our ETF Chartbook highlighted to members a short term bottom in XLK a few weeks ago and for me to have a little more confidence in the sector, a move above $136 would provide that.
Gaming Stocks
I put BJK to our clients / members 2 weeks ago. It’s also done as expected.
If we’re above $38.75, in my opinion, there’s an upside risk : reward proposition to be had.
In Conclusion
At this moment in time, despite all the economic carnage, the inverted Yield Curve, the job losses, the drop in corporate earnings, I still see some constructive under the hood technical developments.
I’ll continue to monitor price. What will you be watching?
Important Disclaimer: I’ll happily change my thesis on absolutely everything on 30secs notice if price tells me to. I never marry a thesis.
Thank you!